Wall Street opens higher as crude rises

Taking its lead from markets elsewhere, Wall Street has opened sharply higher as commodity prices - oil in particular - gained ground.

The Dow Jones Industrial Average is up 133 points or 0.7% in early trading, while the S&P 500 is up 0.37% and Nasdaq is 0.49% better.

European markets had already surged ahead on the last full trading day before Christmas. Commodity companies are leading the way after iron ore prices rose in Australia and copper prices moved higher.

Traders work at the New York Stock Exchange. Photograph: Spencer Platt/Getty Images

Hopes for further stimulus measures from China to boost its economy have played a major part in the increases, while a report that the country’s steel industry planned to cut excess capacity has also helped.

Oil prices have also benefitted, with Brent crude currently up nearly 2% at $36.82.

The FTSE 100 is 2.2% higher, while Germany’s Dax has added 1.7% and France’s Cac has climbed 2%. Italy’s FTSE MIB is up 1.2% while Spain’s Ibex - which has recovered well after the initial falls in the wake of the weekend’s inconclusive election - is up 2.1%.

On that note, it’s time to close for the day. Thanks for all your comments and we’ll be back tomorrow.

Back with the UK GDP figures, and here is economics correspondent Phillip Inman’s analysis of what the data means for the chancellor:

George Osborne’s year has ended with a bump. Like a Strictly Come Dancing finalist drunk on high marks for his paso doble and tango, he has come unstuck on the last foxtrot.

Official growth figures have been downgraded for the third quarter, undermining boasts that the UK was marching hand in hand with the US as one of the best-performing economies in the western world.

Only last month the chancellor was still feeling the afterglow of the Conservatives’ election victory in May. His autumn statement mini-budget was considered a triumph of political manoeuvring that set the government fair for re-election in 2020.

Many of those judging Osborne’s high kicks and fancy footwork held up perfect scores at the time.

Osborne. Photograph: Olivier Hoslet/EPA

A series of revisions by the Office for Budget Responsibility had upgraded the UK’s growth forecasts while maintaining the steady path of deficit reduction. With the economy expanding at a rate our European neighbours could only dream of, and the annual deficit predicted to reach zero by the end of the parliament, Osborne’s chances of becoming the next prime minister seemed on track.

Now that the Office for National Statistics has told us that growth in the third quarter was lower than previously forecast, the rate for the whole year is likely to be around 2.2%, compared to 2.9% in 2014.

It comes on top of the news from the ONS that the government’s borrowing was higher in November than in the same month last year, when this period was supposed to be one when borrowing fell considerably.

These twin blows illustrate how the UK needs strong growth to improve the public finances. Without stellar growth it is much harder to reduce the still large gap between government spending and income.

Greece has received €1bn from the EU bailout fund, the European Stability Mechanism after completing a second set of reform milestones.

The money will be used for debt service, budget financing and co-financing projects funded by EU structural funds. The ESM has also handed over €5.4bn for bank recapitalistation. In a statement the ESM said:

ESM Managing Director Klaus Regling said: “With the disbursement of €1 billion, the ESM is supporting the Greek government in its reform process. The reforms cover a wide array of policy fields that are important to modernise the Greek economy. Notable examples include measures to stimulate competition in the energy sector, which should bring down prices, as well as a new law to help banks manage their exposure to non-performing assets, which will free liquidity and boost economic activity.

Mr Regling added: “I hope the good cooperation with our Greek partners will continue, so that the first review of the ESM programme can be completed in early 2016. Only a successful conclusion of this review can lead to discussions on further debt relief for Greece, as the Eurogroup has said before.”

The €1 billion will be the third and final disbursement of the initial loan sub-tranche of €16 billion agreed in August 2015. The ESM has also disbursed €5.4 billion to Greece for bank recapitalisation. Following the disbursement approved today, the total amount of ESM financial assistance for Greece will thus reach €21.4 billion, which is around 25% of the initial programme volume of up to €86 billion approved by the ESM Board of Governors on 19 August 2015.

Despite the weak GDP figures, a rate rise from the Bank of England is still expected next year, even if not in the immediate future. Calum Bennie, savings expert at Scottish Friendly said:

Growth may be fragile but it is continuing and so attention will turn to an interest rate rise at some point in 2016. This is yet another sign that the party could be over for cheap borrowing. The guests may still be in the room but the music has stopped and with interest rate rises on the horizon borrowers have to prepare now for the very real possibility of larger debt repayments in 2016. People need to turn their attention to putting money aside to reduce any risks to their financial future as there is a degree of uncertainty ahead.

Here’s our take on the UK GDP figures by economics editor Larry Elliott:

The chances of the government hitting its growth forecast for 2015 has receded after official figures showed the economy performing less well than originally thought in the first three-quarters of the year.

In a second pre-Christmas setback for George Osborne, the Office for National Statistics on Wednesday cut its estimates for expansion in both the second and third quarters.

The ONS originally said growth in the three months to September was 0.5%, but said new data showing a sharper slowdown in the UK’s dominant service sector had resulted in the estimate being cut to 0.4%.

With growth in the second quarter also revised down – from 0.7% to 0.5% – the annual rise in GDP in the year to the end of September has been trimmed from 2.3% to 2.1%.

More pain for George Osborne as ONS cuts UK economic growth

UK productivity, measured by output per hour, grew by 0.5% from the second to third quarter. The ONS said this was the highest level recorded for the series, but since it only began in 2008, it is 13% below a trend extrapolated before the financial downturn in that year.

UK productivity. Photograph: Office for National Statistics

(ABDE refers to Agriculture, Forestry and Fishing, Mining and Quarrying, Electricity, Gas, Steam and Air Conditioning Supply and Water Supply, Sewerage, Waste Management and Remediation Activities)

Better news for the UK government, with the current account deficit stable at £17.5bn in the third quarter compared to expectations of a figure of £21.5bn.

That accounts for 3.7% of GDP and is down from the peak figure of £28.5bn in the fourth quarter of last year. IHS Global Insight economist Howard Archer said:

The UK current account deficit was unexpectedly stable in the third quarter at the lowest level since the third quarter of 2013 as a reduced shortfall in investment income countered a renewed widening in the total trade deficit.

It is of some relief that the UK current account deficit was stable at a reduced level in the third quarter. While the markets have so far taken a relatively relaxed view of the UK’s elevated current account deficit, it could become an increasing problem if the markets lose confidence in the UK economy for any reason.

The GDP figures show the problem of the UK economy relying on domestic demand, says economist Nina Skero at the Centre for Economics and Business Research:

Today’s release only adds fuel to the existing concerns that economic growth is overly reliant on household consumption. Given continued subdued performance in key markets and the relative strength of sterling (which may get even stronger as interest rates begin to rise), boosting trade prospects will require constant government encouragement. Programmes such as Exporting is Great, which offer advice and access to export opportunities for firms, are a step in the right direction. We still expect relatively robust GDP growth of 2.0% in 2016, but much of this relies on the boost to consumption arising from low inflation and higher wages. While this is fine in the short term, it is not sustainable formula for economic growth in the long run.

Back with the UK GDP figures and David Kern, British Chambers of Commerce chief economist said:

It is not hugely surprising to see GDP growth downgraded slightly, as it is in line with the revisions in our own forecast earlier this month. However it is concerning that it weaker growth in our dominant services sector has played a part.

Given the slump in our manufacturing sector, our services sector will still be expected to drive economic growth as we enter 2016.

The sharp widening of the trade deficit will provide little festive cheer. Our exporters will need all the help they can get in order to redress this – and improved access to finance for those looking to export would be a good first step.

On the oil price, Opec assumes it will average $55 a barrel during 2015 (at the moment Brent crude is $36.48) and will reach $70 (in 2014 prices) by 2020 and $95 by 2040:

[This reflects] a gradual improvement in market conditions as growing demand and slower than previously expected non-Opec supply growth eliminate the existing oversupply and lead to a more balanced market. This, in turn, will provide support to prices.